Brazil has had a long period of high inflation. It peaked around 100 percent per year in 1964, decreased until the first oil shock (1973), but accelerated again afterward, reaching levels above 100 percent on average between 1980 and 1994. This last period coincided with severe balance of...

Partisanship of state level politicians affect the impact of federal fiscal policy in the U.S. Using data from close gubernatorial elections, we find partisan differences in the marginal propensity to spend federal transfers since the early 1980's: Republican governors spend less. A New...

The desirability of fiscal constraints in monetary unions depends critically on whether the monetary authority can commit to follow its policies. If it can commit, then debt constraints can only impose costs. If it cannot commit, then fiscal policy has a free-rider problem, and debt constraints...

We analyze the setting of monetary and nonmonetary policies in monetary unions. We show that in these unions a time inconsistency problem in monetary policy leads to a novel type of free- rider problem in the setting of nonmonetary policies, such as labor market policy, fiscal policy, and bank...

With the renewed interest in cities as economic centers comes a need to understand how local public services and local taxes are likely to affect city economic performance. This paper provides an equilibrium model of an open city economy with mobile firms and resident workers. Given household...

We provide an introduction to optimal fiscal and monetary policy using the primal approach to optimal taxation. We use this approach to address how fiscal and monetary policy should be set over the long run and over the business cycle. We find four substantive lessons for policymaking: Capital...

The `Excessive Deficit Procedure' of the Maastricht Treaty on Economic and Monetary Union proposes two fiscal convergence conditions for entry and continued membership in the EMU: 1) a country's overall budget deficit for each fiscal year must be equal to or below 3% of GDP, and 2) a country's...

This paper develops the quantitative implications of optimal fiscal policy in a business cycle model. In a stationary equilibrium the ex ante tax rate on capital income is approximately zero. There is an equivalence class of ex post capital income tax rates and bond policies that support a given...

The institutions of federal fiscal-policy making seem incapable of confronting the central domestic issues of the day. This paper presents a model of congressional decision-making in which legislators' incentives are contrary to fiscal efficiency. In such an environment, a "strong" president may...

If there has been a dominant trend in the evolution of the modern industrial societies of this century it has been the growing importance of government in the allocation of social resources. It is important that we appreciate the fundamentally political nature of the formation of government...